UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ TO _______
Commission File No. 0-4678
Pancho's Mexican Buffet, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1292166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 Noble Avenue, Fort Worth, Texas 76111
(Address of principal executive offices) (Zip Code)
817-831-0081
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
Number of shares of Common Stock outstanding as of May 3, 1996:
4,397,559.
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Introduction 1
Consolidated Condensed Balance Sheets,
March 31, 1996 and September 30, 1995 2
Consolidated Condensed Statements of
Operations for the Three-Months and Six-
Months Ended March 31, 1996 and 1995 3
Consolidated Condensed Statements of Cash
Flows for the Six-Months Ended March
31, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5
Independent Accountants' Review Report 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings (no response required)
Item 2. Changes in Securities - see discussion in Note 3 5
Item 3. Defaults Upon Senior Securities (no
response required)
Item 4. Submission of Matters to a Vote of
Security Holders (no response required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated condensed financial statements included herein
have been prepared by the Company without audit as of March 31, 1996
and for the three-month and six-month periods ended March 31, 1996
and 1995 pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1995. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments except as discussed
in the notes to the consolidated condensed financial statements,
necessary to present fairly the financial position of the Company as
of March 31, 1996, and the results of operations and cash flows for
the indicated periods have been included. The results of operations
for such interim periods are not necessarily indicative of the
results to be expected for the fiscal year ending September 30, 1996.
Deloitte & Touche LLP, independent public accountants, has made
a limited review of the consolidated condensed financial statements
as of March 31, 1996 and for the three-month and six-month periods
ended March 31, 1996 and 1995 included herein.
-1-
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
March 31, September 30,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,352,000 $ 1,199,000
Accounts and notes receivable-current portion 475,000 486,000
Income taxes receivable 190,000 1,227,000
Inventories 660,000 907,000
Prepaid expenses 252,000 267,000
Deferred income taxes 251,000 294,000
Total current assets 3,180,000 4,380,000
PROPERTY, PLANT AND EQUIPMENT (AT COST):
Land 3,446,000 3,446,000
Buildings 10,468,000 10,346,000
Leasehold improvements 22,187,000 22,465,000
Equipment and furniture 29,197,000 29,612,000
Construction in progress 18,000 517,000
Total 65,316,000 66,386,000
Less accumulated depreciation and amortization (31,066,000) (30,353,000)
Property, plant and equipment-net 34,250,000 36,033,000
OTHER ASSETS:
Deferred income taxes 2,887,000 2,909,000
Other, including noncurrent portion of receivables 945,000 1,065,000
Total other assets 3,832,000 3,974,000
TOTAL $ 41,262,000 $ 44,387,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,389,000 $ 1,209,000
Accrued wages and bonuses 2,224,000 2,141,000
Other current liabilities 1,544,000 2,120,000
Total current liabilities 5,157,000 5,470,000
OTHER LIABILITIES:
Long-term debt 6,284,000 8,705,000
Accrued insurance costs 3,374,000 3,031,000
Other 108,000 193,000
Total other liabilities 9,766,000 11,929,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 440,000 440,000
Additional paid-in capital 18,632,000 18,633,000
Retained earnings 8,369,000 8,894,000
Cumulative foreign currency translation adjustment (572,000) (449,000)
Stock notes receivable from officers (530,000) (530,000)
Stockholders' equity 26,339,000 26,988,000
TOTAL $ 41,262,000 $ 44,387,000
<FN>
See notes to consolidated financial statements.
</FN>
<PAGE>
</TABLE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTIONS>
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 17,915,000 $ 19,868,000 $ 35,375,000 $ 40,778,000
COSTS AND EXPENSES:
Food costs 4,880,000 5,801,000 9,847,000 11,744,000
Restaurant labor and related expenses 6,551,000 7,540,000 13,321,000 15,670,000
Restaurant operating expenses 4,188,000 4,586,000 8,051,000 9,197,000
Depreciation and amortization 979,000 1,179,000 1,993,000 2,346,000
General and administrative expenses 1,252,000 1,352,000 2,608,000 2,771,000
Total 17,850,000 20,458,000 35,820,000 41,728,000
OPERATING EARNINGS (LOSS) 65,000 (590,000) (445,000) (950,000)
INTEREST EXPENSE (161,000) (131,000) (344,000) (232,000)
OTHER, INCLUDING INTEREST INCOME 69,000 35,000 159,000 67,000
EARNINGS (LOSS) BEFORE INCOME TAXES (27,000) (686,000) (630,000) (1,115,000)
PROVISION (BENEFIT) FOR INCOME TAXES 10,000 (240,000) (237,000) (390,000)
NET EARNINGS (LOSS) $ (37,000) $ (446,000) $ (393,000) $ (725,000)
NET EARNINGS (LOSS) PER SHARE $ (0.01) $ (0.10) $ (0.09) $ (0.16)
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTIONS>
Six Six
Months Ended Months Ended
March 31, March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (393,000) $ (725,000)
Adjustments to reconcile net loss to net
cash provided (used) by operating activities:
Depreciation and amortization 1,993,000 2,346,000
Provision (benefit) for deferred income taxes 65,000 229,000
Amortization of restaurant start-up costs 26,000 63,000
Payment of restaurant start-up costs (23,000)
(Gain) loss on sale of assets (79,000) (7,000)
Changes in operating assets and liabilities:
Accounts and notes receivable (1,000) 234,000
Income taxes receivable 1,037,000 (632,000)
Inventories, prepaid expenses and other assets 279,000 293,000
Accounts payable and accrued expenses (72,000) (1,340,000)
Total adjustments 3,248,000 1,163,000
Net cash provided by operating activities 2,855,000 438,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (280,000) (4,592,000)
Proceeds from sale of assets 131,000 157,000
Other 7,000
Net cash (used in) investing activities (142,000) (4,435,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (22,000)
Long-term borrowings 15,087,000 28,565,000
Repayments of long-term borrowings (17,508,000) (24,955,000)
Proceeds from increase in minority interest 100,000
Dividends paid (66,000) (528,000)
Net cash provided (used) by financing activities (2,509,000) 3,182,000
EFFECT OF FOREIGN EXCHANGE RATE
CHANGE ON CASH (51,000) (64,000)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 153,000 (879,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,199,000 1,661,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,352,000 $ 782,000
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 14,000 $ 30,000
Assets sold for notes receivable 125,000
Interest paid, net of capitalized amounts 347,000 199,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of
shares and equivalent shares (including stock options, when
dilutive) outstanding during each period. The weighted average
of such shares was 4,398,000 for the three-months and six-months
ended March 31, 1996 and 1995.
2. LONG-TERM DEBT
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants.
Due to net losses incurred by the Company in the quarter ended
December 31, 1995 and each of the three consecutive quarters
ended June 30, 1995, the Company violated certain of these
covenants. The bank has granted permanent waivers for each of
those specific covenant violations.
In February 1996, the Loan Agreement was amended to reduce the
revolving credit line to $8 million effective March 31, 1996 and
extend its termination date to April 30, 1997. The amendment
reduces the credit limit at the end of each subsequent quarter by
$750,000 plus 75% of the Company's excess cash flow (as defined
in the agreement). Cash capital expenditures and cash dividend
payments are limited by the amendment to $850,000 and $150,000
per fiscal year, respectively.
At March 31, 1996, the Company had $1,770,000 available under the
bank credit line.
3. STOCKHOLDERS' RIGHTS PLAN AND PREFERRED STOCK PURCHASE RIGHTS
In January 1996, the Company's Board of Directors adopted a
Stockholders' Rights Plan to replace a similar plan which expired
on March 31, 1996. Under the new plan, the Company declared a
dividend distribution of one preferred share purchase right
(Right) for each share of common stock outstanding at the close
of business on March 29, 1996. Each Right entitles the holder to
buy one one-thousandth of a share of the Company's
newly-designated Series A Junior Participating Preferred Stock,
for the exercise price of $10 per one one-thousandth of a
Preferred Share, subject to adjustment.
-5-
<PAGE>
If any person or group (other than certain current stockholders
and their affiliates, associates and successors, which may
acquire up to 28%) acquires 15% of the Common Stock, all
stockholders except the acquiring person (Acquiror) will be
entitled to purchase Common Stock having twice the market value
of the Rights exercise price. If the Company is involved in a
merger or other business combination, or sells 50% or more of its
assets or earning power, all of the Stockholders, other than the
Acquiror, will be entitled to purchase Common Shares of the other
person having twice the market value of the exercise price.
Under the Plan's exchange provision, any time after such an
acquisition but before any person acquires a majority of the
Common Stock, the Board of Directors may exchange all or part of
the outstanding Rights (other than the Rights of the Acquiror)
for Common Stock at a ratio of one Right per share.
The Rights trade with the common stock, and are not exercisable
or transferable apart from the common stock until 10 days after a
person or group acquires, or announces a tender offer for, 15% or
more of the Company's outstanding common stock. Before
acquisition by someone of beneficial ownership of 15% or more of
the Company's common stock, the Rights are redeemable by the
Board for $.01 per Right. The Rights expire on March 27, 2006.
Under the Plan, the Company's Board of Directors has designated
10,000 shares of preferred stock as Series A Junior Participating
Preferred Stock. This designation is part of the 500,000 shares
of preferred stock, par value $10, previously authorized, none is
issued.
4. CASH DIVIDEND
On January 24, 1996, the Company's board of directors declared a
$.015 per common share semi-annual cash dividend. The dividend
will be paid on June 11, 1996 to holders of record on May 28,
1996. On December 12, 1995, the Company paid a cash dividend of
$.015 per common share to holders of record on November 28, 1995.
-6-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Pancho's Mexican Buffet, Inc.:
We have reviewed the accompanying consolidated condensed balance
sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of March
31, 1996, the related consolidated condensed statements of operations
for the three-month and six-month periods ended March 31, 1996 and
1995, and the consolidated condensed statements of cash flows for the
six-month periods ended March 31, 1996 and 1995. These consolidated
condensed financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical review procedures to financial data and of making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1995,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended (not presented herein),
and in our report dated November 7, 1995, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed
balance sheet as of September 30, 1995, is fairly stated in all
material respects in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
May 1, 1996
-7-
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
As of March 31, 1996 the Company's current ratio was 0.6 to 1, down
0.3 from September 30, 1995. The current ratio decreased mainly
because about $1 million received for income taxes receivable was
used to reduce long-term debt. Cash and cash equivalents increased
$153,000 in the six-month period to $1,352,000 at March 31, 1996, as
cash provided by operations exceeded cash used in investing and
financing activities.
Net operating cash flow increased $2.4 million for the six-months
ended March 31, 1996 versus the same period last year. The increase
in positive cash flow was due largely to the receipt of about $1
million of income tax refunds, and the prior year accounts payable
reduction of $1.3 million was not repeated. Operating margins also
contributed more cash as the first half net loss was $332,000 lower
than last year.
The Company invested $280,000 cash for property additions in the
six-months ended March 31, 1996, primarily to remodel existing
restaurants and complete the Guadalajara location, which opened in
October 1995. The Company received $131,000 from sale of excess
equipment. No other new locations have been opened or under
construction in fiscal 1996.
No new restaurants are currently planned, as management intends to
focus on improving sales and profitability and reducing debt.
Capital spending to remodel existing restaurants and to install
restaurant computer systems will continue within the constraints of
available cash flows and the loan agreement restriction of $850,000
per fiscal year (see Note 2 to the consolidated condensed financial
statements).
In the half-year ended March 31, 1995, the Company invested $4.6
million cash, primarily to build four new restaurants, remodel
existing locations and install new restaurant computer systems.
Financing activities used net cash of $2,509,000 in the current
six-month period, as long-term debt was reduced by $2.4 million and a
cash dividend of $66,000 was paid. In the half-year ended March 31,
1995, financing activities provided net cash of $3.2 million, from
net long-term borrowings of $3.6 million, primarily to fund new
restaurant construction, less dividends of $528,000.
-8-
<PAGE>
On January 24, 1996, the Company's board of directors declared a
$.015 per common share semi-annual cash dividend, changing from
quarterly dividends. The dividend will be paid on June 11, 1996 to
holders of record on May 28, 1996. On December 12, 1995, the Company
paid a cash dividend of $.015 per common share to holders of record
on November 28,1995.
The current loan agreement limits cash dividends to $150,000 per
fiscal year. As the Company paid $66,000 for cash dividends in
December 1995 and will pay another $66,000 in June 1996, no other
cash dividends are planned for fiscal 1996. Future cash dividends
will depend on earnings, financial position, capital requirements and
other relevant factors.
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants. Due to
the net losses incurred by the Company in the quarter ended December
31, 1995 and each of the three quarters ended June 30, 1995, the
Company violated certain of these covenants. The bank has granted
permanent waivers for each of those specific covenant violations.
In February 1996, the Loan Agreement was amended to reduce the
revolving credit line to $8 million effective March 31, 1996 and
extend its termination date to April 30, 1997. The amended agreement
reduces the credit limit at the end of each subsequent quarter by
$750,000 plus 75% of the Company's excess cash flow (as defined in
the agreement). Cash capital expenditures and dividend payments are
limited by the amendment to $850,000 and $150,000 per fiscal year,
respectively.
At March 31, 1996, the Company had $1,770,000 available under the
bank credit line.
Management is taking steps to ensure that the Company will be able to
comply with all of its covenants under the Loan Agreement in the
future. However, should the bank decline to waive a future covenant
violation, the bank would be required under the Loan Agreement to
give the Company 15 days written notice of the violation, after which
time the Company would be in default. At the bank's option, it could
then declare the loan principal and all accrued interest current and
payable and/or refuse to make additional advances on the credit line.
The Company could then be forced to seek alternative sources of
financing.
The Company believes it will realize substantial benefits from using
federal employer tax credits and state NOL carryforwards to reduce
future federal and state income tax liabilities. If the Company's
results of operations do not timely achieve levels needed to use the
employer tax credits or the state NOL carryforwards, they could
expire before use, resulting in a charge against income.
-9-
<PAGE>
In the six-months ended March 31, 1996, deferred tax assets reversed
a net amount of $65,000, due primarily to the payment of
restructuring and non-qualified compensation plan liabilities, and
the reversal of book-tax fixed asset basis differences, partially
offset by increased insurance reserves.
Results of Operations
Sales decreased $5,403,000 (13.2%) and $1,953,000 (9.8%) for the
six-months and three-months ended March 31, 1996 compared to the same
periods last year. The 12 restaurants closed in fiscal 1995
represented $3.6 million and $1.8 million in sales in the half and
quarter ended March 31, 1995. Same-store (stores open throughout all
of the current and prior year periods) sales were down 8.9% and 5.3%
in the current six-month period and quarter, respectively. Four new
restaurants opened since October 1994 added sales of $1,350,000 for
the current half and $734,000 for the current quarter.
Average sales for restaurants open throughout the first half-year
were down 3.2%, to $547,000, compared to the same period last year.
Average sales for restaurants open throughout the current quarter
were $277,000 versus $276,000 for the second quarter of fiscal 1995.
Food costs were down 1% of sales for the six-months and 2% of sales
for the three-months ended March 31, 1996 compared with the same
periods in fiscal 1995. The decreases resulted from more
cost-efficient preparation methods and recipes combined with changes
in food offerings, implemented to maintain or improve quality while
lowering costs. High food costs relative to menu pricing in the
Guadalajara restaurant inflated the Company's year-to-date food costs
by 0.2% of sales.
Restaurant labor and related expenses decreased 0.7% of sales and
1.4% of sales for the current six-months and three-months,
respectively, compared to the same period in fiscal 1995. These
reductions overcame an increase in restaurant management bonuses of
0.3% and 0.4% of sales for the current half and quarter,
respectively, due to improved operating results. The Company's
continuing labor control program, based on variable scheduling
guidelines with intensive supervisory review, provided the
improvement.
Restaurant operating expenses increased 0.2% of sales and 0.3% of
sales for the current six-month and three-month periods versus the
same periods last year, despite dollar savings of $1,146,000 and
$398,000, respectively. The percentage increases resulted primarily
from inclusion of sales and operating costs for the Guadalajara
restaurant, where generally fixed operating costs are high relative
to low sales.
-10-
<PAGE>
Depreciation and amortization decreased $353,000 and $200,000 for the
six-months and three-months ended March 31, 1996 from the same
periods in fiscal 1995. Reductions from restaurant closings and
impairments were partially offset by the opening of four new
restaurants since October 1994, in Pasadena, Baytown, and Galveston,
Texas and in Guadalajara, Mexico.
General and administrative expenses were up 0.6% of sales for the
six-months ended March 31, 1996 versus the same period in fiscal
1995. The year-to-date percentage increase resulted from the effect
of lower sales despite a $163,000 expense reduction. Lower sales for
the current quarter also increased general and administrative
expenses 0.2% of sales versus the prior year quarter despite a
$100,000 cost reduction.
Interest expense rose $112,000 year-to-date compared to the same
period in fiscal 1995 due to higher interest rates and less interest
capitalization due to reduced construction activity. For the quarter
ended March 31, interest expense was $30,000 higher in 1996 than in
1995, but $22,000 lower than the first quarter of fiscal 1996, as the
Company significantly reduced its debt in the second quarter. The
Company plans to continue reducing its debt, which should yield lower
interest expense each quarter, barring major interest rate increases.
The benefit for income taxes was $237,000 for the current six-months,
an effective rate of about 37.6%, versus an effective rate of 38.4%
for fiscal year 1995. Both effective benefit rates reflect the
Company's tax planning strategies considering its net loss results.
Despite its consolidated second quarter loss, the Company recognized
a $10,000 provision for income taxes for its U.S. operating results.
Due to lower sales and other factors discussed above, the Company
reported net losses of $393,000 and $37,000 for the six-months and
three-months ended March 31, 1996 versus losses of $725,000 and
$446,000 for the same periods last year. The second quarter of
fiscal 1996 reflected significantly improved margins that resulted
from intensive food and labor cost control programs by the Company,
combined with less severe sales declines. The Company's future
earnings depend largely on maintaining tight cost controls and
improving sales in the highly-competitive restaurant industry.
Other Uncertainties and Trends
Mexico is currently experiencing an economic crisis stemming from the
December 1994 devaluation of the Mexican peso. Management believes
that the economic difficulties in Mexico will have a long-term
negative impact on the Company's Guadalajara restaurant, and,
accordingly, an impairment charge of $812,000 was recorded during the
quarter ended June 30, 1995.
-11-
<PAGE>
The long-term impact of this economic crisis on the Company's
restaurant operations is difficult to estimate. Since opening in
late October 1995, sales for the Company's Guadalajara restaurant
have been lower than expected, resulting in a net operating loss for
that location's first five months of operation. Management is
currently evaluating methods to improve sales and reduce costs.
The Company has invested about $1.8 million in this restaurant and
expects that some additional investment may be required. If the
restaurant continues to incur negative cash flows or operating
losses, more operating, impairment or restaurant closing losses may
be recognized in future periods. Future Company restaurant
development in Mexico depends on the success of the Guadalajara
restaurant.
In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the net effect of foreign
currency exchange rate changes for the investment in Mexican
operations is shown in the Cumulative foreign currency translation
adjustment in Stockholders' Equity. If the Mexican operations were
disposed or abandoned, then the Cumulative foreign currency
translation adjustment balance would result in a charge to earnings.
The debit balance for this item increased $123,000 to $572,000 at
March 31, 1996 from September 30, 1995, as the Mexican peso was
further devalued versus the U.S. dollar.
A large number of the Company's restaurant employees are paid at or
near the federal minimum wage, so an increase in the minimum wage
would affect the Company's labor costs.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number
2 Not applicable
4 Not applicable
10(u) Fourth Amendment to Revolving Credit and Term
Loan Agreement
11 Not required--explanation of net earnings (loss)
per share computation is contained in notes to
consolidated condensed financial statements.
15 Letter re: unaudited interim financial information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 1996
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PANCHO'S MEXICAN BUFFET, INC.
May 14, 1996 /s/ Hollis Taylor
Hollis Taylor, President and Chief
Executive Officer (Principal Executive
Officer)
May 14, 1996 /s/ W. Brad Fagan
Brad Fagan, Vice President, Treasurer,
Controller and Assistant Secretary
(Principal Financial and Accounting
Officer)
-14-
<PAGE>
EXHIBIT 15
Pancho's Mexican Buffet, Inc.:
We have reviewed in accordance with standards established by the
American Institute of Certified Public Accountants the unaudited
interim financial information of Pancho's Mexican Buffet, Inc. and
subsidiaries for the six-months and three-months ended March 31, 1996
and 1995, as indicated in our report dated May 1, 1996; because we
did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, is incorporated by reference in Registration Statements No.
2-86238 and No. 33-60178 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
May 10, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheets as of March 31, 1996 and the consolidated
condensed statement of operations for the six-months then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,352,000
<SECURITIES> 0
<RECEIVABLES> 475,000
<ALLOWANCES> 0
<INVENTORY> 660,000
<CURRENT-ASSETS> 3,180,000
<PP&E> 65,316,000
<DEPRECIATION> 31,066,000
<TOTAL-ASSETS> 41,262,000
<CURRENT-LIABILITIES> 5,157,000
<BONDS> 0
0
0
<COMMON> 440,000
<OTHER-SE> 25,899,000
<TOTAL-LIABILITY-AND-EQUITY> 41,262,000
<SALES> 35,375,000
<TOTAL-REVENUES> 35,375,000
<CGS> 9,847,000
<TOTAL-COSTS> 33,212,000
<OTHER-EXPENSES> 2,608,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344,000
<INCOME-PRETAX> (630,000)
<INCOME-TAX> (237,000)
<INCOME-CONTINUING> (393,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (393,000)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
FOURTH AMENDMENT TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
This Fourth Amendment To Revolving Credit and Term Loan Agreement (this
"Fourth Amendment") is made by and among PMB Enterprises West, Inc., a New
Mexico corporation ("Company"), and First Interstate Bank of Texas, N.A.
("Bank").
WHEREAS, the parties entered into that one certain Revolving Credit and
Term Loan Agreement dated February 16, 1994 (the Revolving Credit and Term Loan
Agreement dated February 16, 1994 and all amendments thereto and restatements
thereof are hereinafter collectively referred to as the "Loan Agreement"); and
WHEREAS, the parties entered into that one certain First Amendment To
Revolving Credit and Term Loan Agreement dated February 9, 1995; and
WHEREAS, the parties entered into that one certain Second Amendment To
Revolving Credit and Term Loan Agreement dated May 9, 1995; and
WHEREAS, the parties entered into that one certain Third Amendment To
Revolving Credit and Term Loan Agreement dated September 29, 1995; and
WHEREAS, the parties desire to amend the Loan Agreement in certain
respects.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is agreed by and among the
parties as follows:
1.
The definitions of Capital Expenditure and Excess Cash Flow are added to
Article I of the Loan Agreement which shall read in their entirety as follows:
"Capital Expenditure" shall mean any expenditure by a Person for an
asset which will be used in a year or years subsequent to the year in which
the expenditure is made and which asset is properly classified in the
relevant financial statements of such Person as property, equipment,
improvements, fixed assets or a similar type of capitalized assets in
accordance with Generally Accepted Accounting Principles.
"Excess Cash Flow" shall mean at any time the sum of (1) Consolidated
Net Income before income tax, (2) depreciation, and (3) amortization less
the sum of (1) taxes actually paid, (2) Dividends, (3) cash paid for
Capital Expenditures and (4) seven hundred fifty thousand dollars
($750,000).
2.
The definition of Termination Date in Article I of the Loan Agreement is
amended to read in its entirety as follows:
"Termination Date" shall mean (i) April 30, 1997, or (ii) such later
date to which the Revolving Credit Period is extended pursuant to Section
2.01(b) hereof.
3.
Section 2.01(a) of the Loan Agreement is amended to read in its entirety as
follows:
(a) Revolving Loan Commitments. Subject to the terms and
conditions of this Loan Agreement, Bank agrees to extend to Company
from the date hereof through the Termination Date (the "Revolving
Credit Period"), a revolving line of credit which shall not exceed ten
million dollars ($10,000,000) at any one time outstanding prior to
March 31, 1996 and shall not exceed $8,000,000 at any one time
outstanding on or after March 31, 1996. On the last day of each and
every calendar quarter beginning with the calendar quarter ended
June 30, 1996, the maximum principal amount which may at any one
time be outstanding under the revolving line of credit shall be
further and additionally reduced by seven hundred fifty thousand
dollars ($750,000). In addition, on the last day of each month
following each and every calendar quarter beginning with the calendar
quarter ended June 30, 1996, the maximum principal amount which may at
any time be outstanding under the revolving line of credit shall be
further reduced by seventy five percent (75%) of the Excess Cash Flow
for such calendar quarter (each maximum amount outstanding under the
line of credit from time to time in effect is hereinafter referred to
as the "Commitment"). Bank shall not be obligated to make any Advance
hereunder if, immediately after giving effect thereto, the aggregate
amount of the Obligations of Company to Bank hereunder exceeds
Bank's Commitment in effect at such time.
Within the limits of this Section 2.01, during the Revolving
Credit Period, Company may borrow, prepay pursuant to Section 4.04
hereof and reborrow under this Section 2.01. Each advance made by
Bank under Section 2.01 and Section 2.02 is herein called an
"Advance" and all Advances made by Bank hereunder are herein
collectively called a "Revolving Credit Loan".
4.
Article III of the Loan Agreement relating to the Term Loan is deleted in
its entirety.
5.
Section 4.02 of the Loan Agreement is amended to read in its entirety as
follows:
4.02. Principal Payments on Revolving Credit Loan. If at any
time the unpaid principal balance of the Revolving Credit Note exceeds
the amount of the Commitment then in effect, there shall be due and
payable to Bank and Company shall promptly pay to Bank an amount
sufficient to reduce the unpaid principal balance of the Revolving
Credit Note to the amount of the Commitment then in effect. The
remaining unpaid principal amount of the Revolving Credit Note, and
all accrued-but unpaid interest thereon, shall be due and payable on
the Termination Date.
6.
A new section 8.01(g) is added to the Loan Agreement which shall read in
its entirety as follows:
(g) Comparable Restaurant Sales. Within seven (7) days
after the end of each week, furnish to Bank a report reflecting sales
during such week by Company and in comparative form the sales of
the Company during the same week of the preceding year.
7.
Section 9.11 of the Loan Agreement is amended to read in its entirety as
follows:
9.11 Net Income. Permit its Consolidated Net Income to be less than
$1.00 during any quarter during the fiscal year 1997.
8.
New sections 9.13, 9.14 and 9.15 are added to the Loan Agreement which
shall read in their entirety as follows:
9.13 Maximum Net Loss. Permit its Consolidated Net Loss during
any calendar month to exceed the amounts set forth opposite the particular
month below:
Month Ending Maximum Net Loss
2/29/96 $200,000
3/31/96 $100,000
4/30/96 $100,000
5/31/96 $ 50,000
6/30/96 -0-
7/31/96 -0-
8/31/96 -0-
9/30/96 $100,000
9.14 Capital Expenditure. Permit the cash paid for Capital
Expenditures on a Consolidated basis to exceed $850,000 during any fiscal
year of the Company.
9.15 Dividends. Pay Dividends in excess of one hundred fifty
thousand dollars ($150,000) in the aggregate during any fiscal year of
Company.
9.
Section 10.01(b) of the Loan Agreement is amended to read in its entirety
as follows:
(b) Failure or refusal of Company to observe, keep and perform any
of the covenants, agreements and obligations hereunder or any of the Loan
Documents and the continuance of such failure or refusal for a period of
fifteen (15) days after receipt of written notice from Bank to Company
specifying such failure (except for the covenants and agreements in Section
8.01 for which there is no cure period); or
10.
Except as amended by the First Amendment, the Second Amendment, the Third
Amendment and this Fourth Amendment, the Loan Agreement is ratified and
confirmed and shall remain in full force and effect.
11.
At the time of execution of this Fourth Amendment, Company shall pay to
Bank a fee in the amount of ten thousand dollars ($10,000).
12.
The effectiveness of this Fourth Amendment shall be conditioned on the
receipt by the Bank of each of the following:
(a) Corporate resolutions of Company authorizing the execution of this
Fourth Amendment;
(b) Incumbency certificate of Company; and
(c) The fee in the amount of ten thousand dollars ($10,000).
13.
Company hereby expressly ratifies, confirms and extends all deed of trust
and mortgage liens and all security interests in favor of Bank and agrees that
each deed of trust lien, mortgage lien and security interest in favor of Bank
shall remain in full force and effect until all indebtedness of Company to Bank
is paid in full and all commitments of Bank to Company have terminated.
14.
Company agrees to pay any and all costs and expenses incurred by Bank in
connection with this Fourth Amendment (including, but not limited to, any and
all appraisal fees, cost of title searches, costs of environmental reports,
recording fees, conveyance fees and reasonable attorneys fees) within ten (10)
days of the date of any invoice for such costs and expenses. Company, at
Company's expense, agrees to promptly execute and deliver to Bank upon request
any and all other and further documents, agreements and instruments as may be
requested by Bank in connection with or relating to this Fourth Amendment and
the Loan Agreement or as may be necessary to correct any omissions or defects in
the documents, agreements or instruments delivered to Bank in connection
therewith.
15.
The parties agree to be bound by the terms and provisions of the current
Arbitration Program of First Interstate Bank of Texas, N.A. which is
incorporated by reference herein and is acknowledged as received by the parties
pursuant to which any and all disputes shall be resolved by mandatory binding
arbitration upon the request of any party.
16.
This Fourth Amendment shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
17.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS AMONG THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
Executed to be effective as of February 16, 1996.
PMB ENTERPRISES WEST, INC.
By:
Samuel L. Carlson, Senior Vice
President
COMPANY
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
Kimberly K. Welch, Assistant Vice
President
BANK
F-ASCII.2
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